Canadian homeowners
Now may be the time for Canadian homeowners to prepare for the summer cooling market and get pre-approved for a mortgage before jumping in.
With prices continuing to go down and the Canadian housing market not cooling off, it’s another good time for buying.
Experts recommend that you go through a mortgage professional to understand your financial capability and the availability of different loans.
Nicki van der Leest, mortgage expert with rates.ca in Toronto, Ont., tells Global News that buyers who haven’t checked in with a professional.
To know exactly what their financial situation is could be surprised to find the home they thought was in their budget isn’t.
“The financing needs to be the very first thing a new or experienced homebuyer jumps into if they want to make their purchase as hassle-free and useful as possible,” he says.
Cox doesn’t agree with those who say you should wait until “your finances are more stable before buying a home.”
If you are considering mortgage, as the Bank of Canada gears up for another interest rate decision on Sept.
7, here are some of the questions to ask before signing on the dotted line to avoid any shocks in your monthly payments:
Types Of Mortgage Professionals: What You Should Know?
Buying a home is different from buying a house because an agent is typically looking after something, whereas the mortgage company wants to help you secure an affordable loan.
Be sure you understand the terminology and are dealing with someone who not just understands the nuances of the industry, but also has the capabilities to help you with your problems.
Mortgage specialis
A mortgage specialist is typically a professional employed directly by a bank or other specific lender.
They’re able to sell mortgage products at that institution but won’t typically have access to mortgage rates and offers outside their lender, says Eitan Pinsky, owner of Pinsky Mortgages in Vancouver.
Sub-mortgage brokers work in B.C. and their counterparts in Ontario typically work as mortgage agents.
Pinsky is a mortgage broker, whose team members in B.C. are called sub-mortgage brokers (in Ontario, typically you see the term “mortgage agent”).
Mortgages and mortgage brokers can switch seamlessly between different institutions to find more attractive options while still staying within their business interests.
Brokers must be properly licensed, and such professionals cannot use the title of broker without being properly credentialed. This includes state entities
Pinsky says that anyone can call themselves a mortgage “adviser” or “expert,” and those terms could apply to either specialists or brokers, so confirm which is the case with your contact.
Mortgage starter questions to set the stage
Both Pinsky and Tran have a series of questions they’d pepper an expert with to set expectations.
Be aware of the turnaround time for getting pre-approved, how much fees you need to pay, which lenders they tend to work with and their experience in the industry.
Those with good financial status and steady employment may be charged significantly less but those with destroyed credit records and businesses stand to face the biggest burden.
To get a mortgage from an alternative lender, you may need to pay fees like startup costs and setup fees.
Pinksy says one aspect of a property purchase that often goes unseen is the cost of closing it. Legal fees, land transfer taxes and other costs can add up at the end of the process.
Customer education is a big part of what the company does, for which Mr. Kaskiewicz says the company has had a good response.
What happens if interest rates rise?
The uncertainty that looms over the Canadian housing market is how high the Bank of Canada’s interest rates will go.
The Bank of Canada sets a rate from which banks and credit lenders price certain mortgage products.
When the Bank of Canada raises interest rates, those who purchase certain mortgages would see those rates pinch.
Some mortgages don’t care about these price increases, while others react a different way.
Fixed-rate mortgages aren’t able to track or change with the Bank of Canada’s interest rate because they are set by the bond market.
With this type of mortgage, payments remain the same and homeowners don’t need to worry about fluctuating borrowing costs.
This type of mortgage provides certainty with terms and until the contract is up, they are not affected by external lending rates.
COVID-19
Variable-rate mortgages are more reactive to decisions made by the Bank of Canada, which rose in popularity during the COVID-19 pandemic as interest rates were already at historic lows.
If a variable, fixed or static mortgage has the same monthly payments as the central bank loan rate changes, they will see their total cost go up or down.
However, a variable number loans would see their monthly payment stay the same but they would spend more money on interest, still ending up with an overall shorter amortization.
Pinsky says that your debt may once again be forgiven at a certain point as well, which you can define yourself.
A trigger point usually requires the client to pay more, and a lump sum, or both.
Todd have talked with every customer who switched their variable rate in the last three years to help them better understand it.
What happens if I break my mortgage?
Things can change quickly when you’re in the middle of a contract and thinking ahead to your new home.
It’s easy to forget about everything else when you’re focused on getting ready for moving.
Homeowners ultimately default on loans more often than not.
Canada is not unique, Pinsky and Tran from Global News told us.
Mortgage borrowers that leave their loans early incur certain penalties for leaving early.
The type of loan will determine the amount you’ll have to pay, so it is important to consider what you’re doing.
The penalty for variable-rate mortgages always equals three months worth of interest.
In the case of fixed-rate mortgages, you will either pay three months of interest or a special “interest rate differential” fee, whichever is larger.
IRD
The IRD is simple: it’s just the present value difference between your principal and your current interest rate.
As these amounts often surpass the standard three-months’ interest, it can be tricky for you to determine the IRD.
Your mortgage agent will go through with you during this process, ensuring that it isn’t too confusing for you.
“When you hear about large penalties being charged by lenders, that’s usually the IRD,” says Craig.
While typically when interest rates are rising it’s good to take out a fixed-rate mortgage.
If this is your only mortgage option, a more affordable “exit strategy” makes this the route to go.
Choosing a shorter term can provide greater financial flexibility and protection from penalties.
Even though interest rates might have to rise again in the not-too-distant future.
There are a few questions to ask your agent before signing up for a mortgage.
But it is just as important to take care of yourself, Tran says.
“It is important to be selective when it comes to choosing the right mortgage because you don’t want to be stuck with large penalties if something unexpected happens.”
